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NEW DELHI: Prime Minister Manmohan Singh's strong defence of the allocation of Talabira II coal block to Hindalco has created uncertainty about the fate of CBI's investigation into the matter, with many feeling that it may turn out to be still-born.

Sources in the agency acknowledged that with the PM owning up the controversial allocation, they were in a bind. "We can't close the investigation straightaway and, having registered an FIR for alleged misconduct, will have to talk to all people concerned. But we are open to the idea of closing the investigation," said a senior source in the agency when asked about the fallout of PMO's intervention on the high-profile probe.

CBI had never ruled out the possibility of investigation being wound up, with senior officials emphasizing at the outset that "FIR is just a primary action in any case" and that "many probes initiated by the agency are shut down". But while closure of investigation was being talked about as a technical possibility, it is now being seen as distinct prospect, with sources in the agency appearing reconciled to abort the probe after seeking legal opinion.

A senior CBI officer explained, "According to our enquiry, the joint venture between PSUs and Hindalco was designed to favour the private company, and it involved violation of rules. However, we will take a thorough legal opinion on whether there was criminality in this matter and if there is nothing against Kumar Mangalam Birla, Hindalco Industries Ltd and P C Parakh, there is a possibility that the case will be closed."

In what marked a repudiation of the allegation against Birla and former coal secretary Parakh, PMO had said on Saturday, "The PM is satisfied the final decision in this regard was entirely appropriate and based on merits of the case placed before him."

CBI had accused Birla and Parakh of conspiring to allocate Talabira II coal block in Odisha to Hindalco, reversing the decision of the screening committee under the coal ministry to award the block to public sector entities Neyveli Lignite Corporation (NLC) and Mahanadi Coalfields Limited. In the FIR, the agency also alleged that the change was to the disadvantage of NLC which had planned to use the Talabira deposits for a power plant it proposed to set up.

The charge was rejected by the PMO which said the decision was changed at the instance of Odisha CM Naveen Patnaik who had cited the needs of his state to demand a reconsideration. It dismissed the charge that NLC was adversely impacted by saying that the final decision was arrived at after factoring in the interests of the PSU.

In contrast to the CBI's charge about there being a conspiracy between Birla and Parakh to favour Hindalco, the PMO painted the decision as legit and influenced by the spirit of federalism and the need to generate jobs in Odisha.

In fact, the PMO went on to say that it had relaxed the guidelines to enhance Hindalco's share from the block: a fact that even the CBI had not mentioned in its FIR to substantiate the charge of criminal conspiracy between the aluminium major and the coal ministry.

Although the PMO emphasized that it did not wish to impede CBI's investigation, sources in the agency said the public rejection of their FIR translated into a clear hint to get off the back of Birla and Parakh.

Although the Coalgate investigation is being monitored by the Supreme Court and the agency has to submit a status report on Tuesday, sources in the agency don't think judicial oversight would come in the way if the agency has to close the case. "We have to give reasons for any action and we will do so to satisfy the court about whatever we may decide to do," said a source.